I cannont believe it I fixed it! Isnt that the way it goes? I spent hours yesterday and finally gave in and posted today and what do you know I changed a setting and it started working and I was able to register my test account!
Here is what I did for others that may have this problem when setting up your new account. I went to Admin Panel -> System -> Configuration -> System -> Mail Sending Settings and changed Host from locale to mail.mydomain.com where mydomain is changed to my website. That did it!